High earners face 45% tax rate

Friday 25 January 2008 00:11 BST

High earners are to be hit with a new income tax rate of 45% as part of the announced package of measures.

In what was described by the Chancellor as "the fairest approach" to help families through the recession, the new upper rate will help fund a series of cuts and credit increases for those less well off.

Alistair Darling said his proposals would help "prevent the recession deepening" but tax experts warned of the impact on the UK's "wealth creators", potentially driving them offshore.

In his Pre-Budget Report, Mr Darling confirmed that people with incomes of more than £150,000 will face a new tax rate of 45%. He also announced that personal allowances would be amended to end a anomaly of the system which sees high-earners gain more benefit than those on basic incomes.

As such it will be reduced for those earning between £100,000 and £140,000 and abolished for those on even higher incomes.

In a bid to further help low earners hit by the abolition of the 10p income tax rate, the Chancellor announced that temporary increase in their personal allowance would be made permanent. Furthermore it would be increased, making them £145 a year better off from April. This would help 22 million basic rate tax payers, according to the Government.

Some tax experts expressed concern over the new top rate of income tax. Stephen Quest, partner at Grant Thornton said it could harm wealth creators. He said: "The people really hit are the high earners. There will not be a lot of sympathy but will it mean the talent goes offshore?"

Employers and workers on medium and high incomes will also be hit by a rise in National insurance Contributions from 2011. But those earning less than £20,000 will be exempt from the rise.

Other moves to help hard-pushed households includes a rise in the Child Tax Credit in April above that originally announced. Pensioners will also see their credits rise from £124 to £130 a week for individuals and £189 to £198 for couples.

Increases in Child Benefit will be introduced in January - three months early. Meanwhile every pensioner will receive a one-off payment of £60 in the new year.